Jefferies' Chris Wood On Why India's Long-Term Story Trumps China's

Global money has ceased investing in China, leaving a significant opportunity for these funds to shift towards India, according to Christopher Wood, global head of equity strategy at Jefferies.

The prevailing consensus that India presents a better long-term structural story than China, and the Indian demographics are a key reason for this preference, he said in an exclusive interview with BQ Prime. Wood has 15% exposure to India through his global fund and is constructive about the nation's prospects, viewing it positively even without accounting for potential surprises.

In terms of India's geopolitical positioning, if the BRICS addition goes through India would be part of a bloc responsible for 40% of global oil exports, significantly enhancing its influence, he said.

Highlighting China's significant presence in the benchmarks of the emerging markets in Asia, Wood expressed concern about its economical and political issues. He drew a parallel to how Russia was effectively excluded from recognised exchanges.

According to him, China may not provide the extensive stimulus that markets anticipate, aligning with President Xi Jinping's current stance, but he doesn't entirely dismiss the possibility.

As the United States engages in an economic battle with China, companies are likely to relocate their production away from the country, he said. Wood used Apple Inc. as an example, highlighting that although the company might prefer to stay in China due to cost and labour advantages, government pressures could compel them to move out. Therefore, businesses will seek to reduce risks associated with this potential scenario.

And while countries like Thailand and Malaysia pose competition to India in terms of production, the substantial domestic market provides a significant advantage, Wood said.

In terms of valuations, Wood said that India stands out as the most appealing market structurally, both among the emerging markets and on a global scale.

He attributes the resilience of the Indian market to its domestic investments, emphasising that investing in quality has historically yielded positive results in India.

Regarding large-cap stocks, Wood said that they are not unreasonably expensive. He also mentioned the long-term benefits of dynamic mutual funds in India, citing their effectiveness during the recent RBI monetary tightening measures. In terms of the relatively high prices of mid-cap stocks, Wood said that they reflect the inflows into mutual funds.

According to Wood, we are starting to see evidence of a more promising private capex cycle for Indian markets, and it is evident by how the market is pricing the capital good cycle beneficiary by rewarding the related stocks.

He expects to see a repeat of the 2002-2009 cycle in India. Given the upcoming elections and rising crude prices, the growth of private capex will be a relief for the government, which saw a large fiscal deficit as it drove for an infrastructure push, Wood said.

India is currently experiencing a real estate cycle, and while there are concerns that it is being led by high-end real estate, Wood argues that many cycles begin this way. India has demonstrated resilience in the face of increasing interest rates, he said.

If the upcoming election results align with the market's preference, there is a significant opportunity for global investors to boost their investments in India, he said.

The only technical challenge is that numerous global funds may possess swift financing tools, whereas India lacks American depositary notes, Wood said.